4.2.1 Absolute and Relative Poverty (Edexcel)

This Edexcel study note covers Absolute and Relative Poverty.

a) Distinction between Absolute Poverty and Relative Poverty:

1. Definition:
   • Absolute Poverty: Absolute poverty is a measure of poverty that focuses on a fixed, minimum standard of living necessary for basic survival. It is usually expressed in terms of income or consumption below a certain threshold.
   • Relative Poverty: Relative poverty, on the other hand, is a measure that considers a person's income or resources in comparison to the overall standard of living within their society. It is more concerned with inequality and social exclusion.
2. Threshold:
   • Absolute Poverty: It has a specific threshold, often set as the income required to meet basic needs such as food, shelter, and clothing. The threshold is relatively constant.
   • Relative Poverty: The threshold for relative poverty varies as it depends on the distribution of income or resources in a particular society. People are considered relatively poor if their income falls significantly below the median or average income in their society.
3. Focus:
   • Absolute Poverty: It primarily focuses on meeting basic human needs and ensuring a minimum standard of living.
   • Relative Poverty: It focuses on the gap between the rich and the poor and the potential social exclusion that can result from income inequality.
4. Applicability:
   • Absolute Poverty: Commonly used in international comparisons and assessing basic needs in developing countries.
   • Relative Poverty: More relevant in developed countries with higher average living standards.
5. Policy Implications:
   • Absolute Poverty: Policies to address absolute poverty often involve providing basic necessities like food, clean water, and healthcare to those who cannot afford them.
   • Relative Poverty: Policies to address relative poverty often involve measures to reduce income inequality, such as progressive taxation and social safety nets.

b) Measures of Absolute Poverty and Relative Poverty:

1. Measures of Absolute Poverty:

   a. Income-Based Approach: This measures poverty based on income or consumption levels relative to a fixed poverty threshold. Common approaches include:

   • Poverty Line: A specific income level below which individuals or families are considered to be in absolute poverty.
   • Basic Needs Approach: Assessing whether individuals can afford essential goods and services such as food, shelter, education, and healthcare.

   b. Cost of Basic Needs (CBN): Calculating the cost of a basket of goods and services necessary for basic survival and determining whether individuals can afford it.

2. Measures of Relative Poverty:

   a. Income Inequality Indices: These indices, such as the Gini coefficient or the Palma ratio, quantify income distribution and help identify relative poverty. Higher values indicate greater income inequality.

   b. Percentiles: Relative poverty can be assessed by comparing an individual's income or wealth to specific percentiles of the income distribution, e.g., the bottom 20% of earners.

   c. Subjective Measures: Surveys and questionnaires can also be used to assess how individuals perceive their economic well-being relative to others in society.

c) Causes of Changes in Absolute Poverty and Relative Poverty:

1. Economic Factors:
   • Economic Growth: Increases in a country's overall income and GDP can reduce absolute poverty by providing more resources to meet basic needs.
   • Income Inequality: Rising income inequality can lead to an increase in relative poverty, even in economically prosperous societies.
2. Social and Demographic Factors:
   • Population Growth: Rapid population growth can strain resources and lead to an increase in absolute poverty.
   • Age and Gender: Vulnerable groups such as children and women are often more prone to poverty due to factors like limited access to education and employment opportunities.
3. Government Policies:
   • Social Safety Nets: Effective social welfare programs can reduce both absolute and relative poverty by providing support to those in need.
   • Taxation and Redistribution: Progressive tax systems and income redistribution policies can help mitigate income inequality and reduce relative poverty.
4. Global Factors:
   • Globalization: Economic globalization can impact poverty levels through changes in trade, investment, and labor markets.
   • Foreign Aid: International aid and development programs can contribute to poverty reduction in developing countries.

In conclusion, understanding the distinction between absolute and relative poverty, the various measures used to assess them, and the factors driving changes in poverty levels is crucial for designing effective poverty alleviation policies and promoting social justice.